Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Mizuho Financial Group / Equity Bottom-Up

Gotōbi (or 五十日 in Japanese) is any date with a ‘5’ or a ‘0’ in it.  In Japan, traditionally, it is a day when money owed is collected and accounts due are settled.  Fridays are always busy days commercially, but when Friday is also a gotōbi things get particularly hectic.  It is a busy day for the banks, too, with a noticeable rise in customer visits to branches and a surge in across-counter transactions, especially in cash and securities.Last Friday, 20th August 2021, was a gotōbi. Imagine, then, the horror that seized bank staff at all 450+ branches of Mizuho Bank (not to mention at its sister organisation Mizuho Trust Bank, where the same thing happened), as 09:00am bank opening time approached, customers were queuing up, and they realised that none of the computer terminals at their counters were working.  None of them; nationwide.Curiously, all the ATMs (source of two previous systems failures) were working normally, as was Mizuho Bank’s Internet banking platform, ‘Mizuho Direct’.  By 10:00am on Friday, most operations were back up and running (except for some foreign currency remittances) and by midday all systems appear to have returned to normal operation.  Management is still trying to establish the cause of the glitch.This now makes the 5th time in 2021 that Mizuho Bank, the principal commercial banking subsidiary of megabank holding company <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a> (MHFG), has had a systems failure.  That it happened on a gotōbi was embarrassing enough in view of the inconvenience to the many customers visiting the bank’s branches at the time.  Doubly embarrassing for management, inspectors from the Financial Services Agency (FSA) were in the process of winding-up their detailed and long inspection of the bank over the four previous systems malfunctions, with a view to deciding whether the bank should be disciplined for the successive failures through the issuance of a Business Correction Order.  That issuance would now seem to be an inevitability.  A formal demand for a detailed report into the incident (報告微求命令 or hōkoku bikyū meirei in Japanese) has already been issued by the FSA to Mizuho Trust Bank as well as to the parent MHFG.Senior management clearly has much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation.  MHFG has time and again promised much but then has either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and where ultimately delivering value remains frustratingly elusive.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Gotōbi (or 五十日 in Japanese) is any date with a ‘5’ or a ‘0’ in it.  In Japan, traditionally, it is a day when money owed is collected and accounts due are settled.  Fridays are always busy days commercially, but when Friday is also a gotōbi things get particularly hectic.  It is a busy day for the banks, too, with a noticeable rise in customer visits to branches and a surge in across-counter transactions, especially in cash and securities.Last Friday, 20th August 2021, was a gotōbi. Imagine, then, the horror that seized bank staff at all 450+ branches of Mizuho Bank (not to mention at its sister organisation Mizuho Trust Bank, where the same thing happened), as 09:00am bank opening time approached, customers were queuing up, and they realised that none of the computer terminals at their counters were working.  None of them; nationwide.Curiously, all the ATMs (source of two previous systems failures) were working normally, as was Mizuho Bank’s Internet banking platform, ‘Mizuho Direct’.  By 10:00am on Friday, most operations were back up and running (except for some foreign currency remittances) and by midday all systems appear to have returned to normal operation.  Management is still trying to establish the cause of the glitch.This now makes the 5th time in 2021 that Mizuho Bank, the principal commercial banking subsidiary of megabank holding company Mizuho Financial Group (8411 JP) (MHFG), has had a systems failure.  That it happened on a gotōbi was embarrassing enough in view of the inconvenience to the many customers visiting the bank’s branches at the time.  Doubly embarrassing for management, inspectors from the Financial Services Agency (FSA) were in the process of winding-up their detailed and long inspection of the bank over the four previous systems malfunctions, with a view to deciding whether the bank should be disciplined for the successive failures through the issuance of a Business Correction Order.  That issuance would now seem to be an inevitability.  A formal demand for a detailed report into the incident (報告微求命令 or hōkoku bikyū meirei in Japanese) has already been issued by the FSA to Mizuho Trust Bank as well as to the parent MHFG.Senior management clearly has much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation.  MHFG has time and again promised much but then has either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and where ultimately delivering value remains frustratingly elusive.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Mizuho Financial Group (8411 JP):  Gotohbi Gremlins

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Hitachi Construction Machinery / Equity Bottom-Up

HCM announced slightly concerning 1Q results yesterday as despite a strong revenue beat (12% above consensus), OP missed by 10%. This is a result of gross margin continuing to undershoot and it is unclear when this issue might be resolved.

HCM announced slightly concerning 1Q results yesterday as despite a strong revenue beat (12% above consensus), OP missed by 10%. This is a result of gross margin continuing to undershoot and it is unclear when this issue might be resolved.

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Nidec's share price jumped 2.4% to ¥1,300 on Wednesday, July 21 - the last trading day before Japan's national holidays, when the company announced results for 1Q of FY Mar-22 - but fell back 3.2% to ¥12,580 today.This reflects the positives and negatives facing the company as it ramps up production of EV motors and drive systems.Results for the three months to June looked good, with operating profit up 60% year-on-year on a 33% increase in sales. 1Q sales, operating profit and net profit were all about 56% of 1H guidance.On top of that, Nidec and Hon Hai announced plans to establish a joint venture to develop Nidec E-axle traction motor systems for EVs made by Hon Hai subsidiary Foxtron Vehicle Technologies.However, competitor Hitachi (6501 JP) announced plans to build EV component factories in Japan China and the U.S. to expand capacity by about 6 times; and price competition in China is severe.At 53x management's EPS guidance and 50x our own EPS estimate for FY Mar-22, and 40x our estimate for FY Mar-24, a lot of potential growth is already in the price.We reiterate our previous conclusion: Guidance is probably conservative, but the shares are still overvalued.

Nidec's share price jumped 2.4% to ¥1,300 on Wednesday, July 21 - the last trading day before Japan's national holidays, when the company announced results for 1Q of FY Mar-22 - but fell back 3.2% to ¥12,580 today.This reflects the positives and negatives facing the company as it ramps up production of EV motors and drive systems.Results for the three months to June looked good, with operating profit up 60% year-on-year on a 33% increase in sales. 1Q sales, operating profit and net profit were all about 56% of 1H guidance.On top of that, Nidec and Hon Hai announced plans to establish a joint venture to develop Nidec E-axle traction motor systems for EVs made by Hon Hai subsidiary Foxtron Vehicle Technologies.However, competitor Hitachi (6501 JP) announced plans to build EV component factories in Japan China and the U.S. to expand capacity by about 6 times; and price competition in China is severe.At 53x management's EPS guidance and 50x our own EPS estimate for FY Mar-22, and 40x our estimate for FY Mar-24, a lot of potential growth is already in the price.We reiterate our previous conclusion: Guidance is probably conservative, but the shares are still overvalued.

Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing

Event-Driven

Hitachi Construction Machinery / Event-Driven

HCM was up as much as 7.2% at one point today after a strong intraday rise in the lunch session. The driver was commentary from parent Hitachi at its AGM where it suggested that it would decide this year whether to sell its stake in HCM or make it a fully consolidated subsidiary.

HCM was up as much as 7.2% at one point today after a strong intraday rise in the lunch session. The driver was commentary from parent Hitachi at its AGM where it suggested that it would decide this year whether to sell its stake in HCM or make it a fully consolidated subsidiary.

Restructuring remains positive for Hitachi Ltd.FY Mar-21 results were above guidance, and management is guiding for operating and net profit growth in FY Mar-22.If the company's stake in Hitachi Metals is sold this year as planned, operating profit would probably be reduced by a low single-digit percentage. But this could be offset by the acquisition of GlobalLogic. Hitachi ABB Power Grids and the Railway Systems business are doing well. The cost of train repairs in the UK looks immaterial to earnings.Despite concerns over the cost of acquisitions, Hitachi Ltd.'s financial position is sound. At the end of March, the company had more than ¥1.8 trillion in cash and other financial assets, net financial liabilities amounted to 18% of equity, and free cash flow was positive. At ¥5,406 (Wednesday, May 19, closing price), the shares are selling at 9.5x FY Mar-22 earnings guidance. 39% potential upside to our ¥7,500 share price target.

Restructuring remains positive for Hitachi Ltd.FY Mar-21 results were above guidance, and management is guiding for operating and net profit growth in FY Mar-22.If the company's stake in Hitachi Metals is sold this year as planned, operating profit would probably be reduced by a low single-digit percentage. But this could be offset by the acquisition of GlobalLogic. Hitachi ABB Power Grids and the Railway Systems business are doing well. The cost of train repairs in the UK looks immaterial to earnings.Despite concerns over the cost of acquisitions, Hitachi Ltd.'s financial position is sound. At the end of March, the company had more than ¥1.8 trillion in cash and other financial assets, net financial liabilities amounted to 18% of equity, and free cash flow was positive. At ¥5,406 (Wednesday, May 19, closing price), the shares are selling at 9.5x FY Mar-22 earnings guidance. 39% potential upside to our ¥7,500 share price target.

Hitachi Ltd. (6501 JP): Results Above Guidance, Growth Ahead

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Hitachi Ltd (6501 JP)

Mizuho Financial Group (8411 JP): Gotohbi Gremlins

Mizuho Bank has suffered its 5th systems failure so far this year, and the FSA is not amused. Neither should shareholders be. Caveat Emptor! (May...

J. Brian Waterhouse

HCM – Miss on Margins

HCM announced slightly concerning 1Q results yesterday as gross margin continues to undershoot and it is unclear when this issue might be resolved.

Mio Kato

Nidec (6594 JP): Good 1Q, but EV Motors Face Tough Competition and Severe Pricing

1Q results were good, but a new electric vehicle JV with Hon Hai will be offset by rising competition from Hitachi and severe pricing in China. Not...

Scott Foster

Hitachi Construction – TOB Head-Fake

Commentary from Hitachi at its AGM that it would decide this year whether to sell its stake in HCM or make it a fully consolidated subsidiary...

Mio Kato

Hitachi Ltd. (6501 JP): Results Above Guidance, Growth Ahead

FY Mar-21 results were above guidance and both sales and profit growth are likely this year. Restructuring is delivering results. Acquisitions do...

Scott Foster

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)